Oil market will see plenty of supplies next year, while demand growth may recover slightly after being revised downwards for 2019, IEA said in its 2020 outlook report.
“In 2Q19, we see global demand growth 0.1 million barrels per day (bpd) lower than in last month’s report. For now though, there is optimism that the latter part of this year and next year will see an improved economic picture,” the report said.
The OECD sees global GDP growth rebounding to 3.4 per cent in 2020, assuming that trade disputes are resolved and confidence rebuilds. This suggests that global oil demand growth will have scope to recover from 1.2 million bpd in 2019 to 1.4 million bpd in 2020, it added.
“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock,” IEA said.
OPEC, Russia and allies will meet later this month in Vienna to decide whether to extend a production. Ministers had agreed to take off 1.2 million bpd from production for a six-month period starting January.
IEA said that OECD oil stocks remain at comfortable levels 16 million barrels above the five-year average. However, although in the first quarter of this year, weak demand helped create a surplus of 1.1 million bpd, but in the second quarter the market is in deficit by an estimated 0.4 million bpd, with the backwardated price structure reflecting tighter markets.
This is partly the result of the group cutting output by 0.5 million bpd more than their committed 1.2 million bpd. Additionally, IEA said that the market could receive further demand from an expected pick-up in refining activity.
IEA said and that OPEC countries are sitting on 3.2 million bpd of spare capacity. While this is welcome news for consumers and the wider health of the currently vulnerable global economy, it will also limit significant upward pressure on oil prices.
However, this must be viewed against the needs of producers particularly with regard to investment in the new capacity that will be needed in the medium term, IEA said.
The U.S. will contribute 90 per cent of this year’s 1.9 million bpd increase in supply expected and in 2020 non-OPEC growth will be significantly higher at 2.3 million bpd with U.S. gains supported by important contributions from Brazil, Canada, and Norway.
In May, the OECD published an outlook for global GDP growth for 2019 of 3.2 per cent, lower than IEA’s previous assumption. World trade growth has fallen back to its slowest pace since the financial crisis ten years ago, according to data from the Netherlands Bureau of Economic Policy Analysis and various purchasing managers’ indices.
In the first quarter of this year, demand growth was only 0.3 million bpd versus a very strong 1Q18, the lowest for any quarter since 4Q11. The main weakness was in OECD countries where demand fell by a significant 0.6 million bpd, spread across all regions.
There were various factors: a warm winter in Japan, a slowdown in the petrochemicals industry in Europe, and tepid gasoline and diesel demand in the United States, with the worsening trade outlook a common theme across all regions.
In contrast, the non-OECD world saw demand rise by 0.9 million bpd, although recent data for China suggest that growth in April was a lacklustre 0.2 million bpd.